The stress test system that gave most European banks a clean bill of health has been called into question.
Only seven of the continent’s institutions failed the tests, designed to examine their ability to survive another economic crisis.
But some economists and financial experts are asking whether getting a pass certificate is enough to calm investors.
“It doesn’t change anything much because we have been advising to stay away from the banks and we continue to do so after the release of the stress tests,” said Fahd Rachidy, an analyst with Vantage Capital Markets. “It is quite disappointing to see that basically what was the core aim of the stress test was to bring credibility and transparency to the markets, and it doesn’t do this.”
Others are saying that the tests revealed little that was new. Of the seven banks that failed, the state of the five Spanish institutions was well known. All were regional savings banks that suffered heavy losses after the collapse of the Spanish property market.
Thirteen out of 14 German banks passed the tests. The one that was not up to scratch has already had a bailout.
“Hypo Real Estate has already been taken over by the State, and it will get the money it needs from taxpayers,” said Oliver Roth, chief trader with Close Brothers Seydler Bank.
The results have been greeted with relief in countries such as Britain, France, and Portugal -whose four main financial institutions all passed.
“We expect that these results will strengthen the confidence in financial markets, and that can help to ensure the best conditions for the Portuguese economy,” said the country’s Prime Minister José Socrates.
Banks are anxiously awaiting the markets’ response to the results when they open on Monday. It may take weeks though to determine whether the tests have made any real difference.